“Measuring Fund Performance”

How do we pick the investments we recommend? Well, ‘performance’, or how much money they make, is of course important. And how do we, and they the fund managers in promoting their wares, measure that? Usually by comparing what they’ve made or lost against a ‘benchmark’, and there’s the rub. I always look at how they’ve done in comparison with other, similar (in terms of risk and where they’re invested) funds and portfolios. In recent years, many have come up with other, arguably easier to beat measures. One of those has been ‘volatility’, how much they go up and down (so they can say going up isn’t as important). Another has been inflation with ‘aiming to provide returns of the CPI + 3%’ being a common one. Which suddenly means 10-12% a year, rather than 5-6%. Hoist by their own petard, is, I think, the expression.